Ken Loach has always put his knack for comedy to work even in his most polemical films. From skewering the pomposity of authority figures, to expressing the natural exuberance of people who weren’t always worn down by struggle, to conjuring French footballers in council estates, Loach shows the value of disarming an audience with laughter. With I, Daniel Blake, his latest film and one of his finest, Loach’s talent for humour runs through the entire work. Here austerity politics is rendered both absurd and abusive in what the title character calls a “monumental farce”, which might be funny if it weren’t true.

In the opening scene, Daniel Blake (comedian Dave Johns), a joiner from Newcastle who is recovering from a major heart attack, has his patience tested by a woman who calls herself a ‘healthcare professional’ and asks him a barrage of questions about his arms, his fingers, his bowels, anything but his real trouble. Daniel’s growing irritation at the ridiculous questions, ones he has already answered on paper, rapidly becomes hilarious. But this test, the ‘fit for work’ assessment that will decide independently of his doctors’ advice whether he can receive the necessary benefits, is deadly serious. And this sick, lonely, unemployed widower’s question, “Why won’t you ask me about my heart?” is unbearably poignant. Within the structure of a comic skit, Paul Laverty’s razor-sharp screenplay encapsulates Daniel’s tragedy.

Following this tick-box assessment, Daniel is denied Employment and Support Allowance and, pending an appeal, his only option for an income is Jobseeker’s Allowance, which comes with conditions. He must spend his days looking for jobs – rare enough in the first place – that he cannot take. Daniel, at the end of his tether, sees that he is not the only victim of this joke. At the job centre where he is made aware of his situation, he meets a single mother from London, Katie (Hayley Squires), transplanted to Newcastle because of a lack of social housing in the capital.

This solution to one city’s housing crisis leaves her stranded without her support network of family and friends. Having taken the wrong bus to the job centre, she has arrived late for her appointment and is denied her week’s benefits. For Katie, after uprooting her family, this is a punishment on top of a punishment. The silver lining is that Daniel and Katie become friends: he looks after her children and helps to fix up her flat, where she lives in Dickensian poverty, starving by candlelight. Katie supports him as he navigates the indignities of the welfare system.

In one of the film’s most moving scenes, she and her children talk to Daniel about his wife. Yes, someone is finally asking him about his heart, but also simply listening to a man rendered voiceless by bureaucracy. While the DWP is ‘digital by default’ and all forms must be completed online, joiner Daniel is ‘pencil by default’. Hence the humiliating interrogation that opens the film, and later a threat of benefit sanctions because handwritten journals and CVs are not acceptable evidence of job-hunting. Daniel, who struggles to use the necessary computers and smartphones, let alone afford them, persists with his pencil until only spray-paint will do, and his unacceptable script is writ large on the job centre wall.

Laverty, Loach’s long-term collaborator, has crafted a script of intricate, hellish detail, describing a system that penalises vulnerability. Robbie Ryan’s austerity palette of beiges, greys and blues also evokes a life stripped to less than the essentials.

Under Loach’s subtle direction, Johns’s talent for joke-telling becomes a bewildered voice of reason and then a rallying cry. Squires is more than a foil to his lead, carrying some of the film’s weightiest, most heartbreaking scenes, including a sequence in a food bank that rivals the end of Cathy Come Home (1966) in Loach’s portfolio of state-induced emotional devastation.

The only alternative to following the twisted rules is illegality, which brings greater rewards and a more distant threat of punitive action. Though Katie and Daniel’s neighbour (a warehouseman on a zero-hours contract) both take that road, Daniel himself cannot. Perhaps the only scene in this compelling film that doesn’t perfectly succeed is when Daniel chivalrously attempts to carry Katie away from the trap she has knowingly entered.

This, the film that brought Loach out of his ‘retirement’, is a return to the form of his best work, and a desperately important exposé of an unfair system. It resists commentary as much as it does cliché, fading to black intermittently to allow reflection instead. I, Daniel Blake, like its hero, demands to be seen.